Insured’s Loss of Its Own Policies Did Not Excuse Its Late Notice, West Virginia’s Highest Court Decides

December 1, 2015 | Insurance Coverage

West Virginia’s highest court, the Supreme Court of Appeals of West Virginia, has reversed an $8 million judgment against an insurance company, ruling that the late notice provided by the insured precluded coverage under the policies – and that the insured’s loss of its own insurance policies did not excuse its duty to provide timely notice.

The Case

U.S. Silica Company was named as a defendant in numerous suits seeking damages for injuries allegedly caused by exposure to silica sand. The first silica claims were filed against U.S. Silica when it was known as Pittsburgh Glass Sand Company (“PGS”) in 1975.

Thereafter, when International Telephone and Telegraph Corporation (“ITT”) sold the company to Pacific Coast Resources Company on September 12, 1985, ITT provided an indemnity agreement to indemnify Pacific Coast for these, and other, silica claims.

Under the terms of the indemnity agreement, ITT agreed to (1) reimburse 100 percent of the defense and settlement costs for silica claims with exposure entirely before September 12, 1985, and (2) reimburse a portion of the defense and settlement costs for silica claims with exposure both before and after September 12, 1985.

For silica claims with exposure entirely after September 12, 1985, ITT provided no indemnity.

On September 12, 1995, ITT’s indemnity agreement was assigned to U.S. Silica. Although the original indemnity agreement expired on this date, it was extended for an additional 10 years, with a new expiration date of September 12, 2005.

Throughout this period, numerous silica claims were filed in which U.S. Silica, or its predecessors, was named as a defendant.

Upon the expiration of the ITT indemnity agreement, U.S. Silica reviewed its insurance policies to determine whether any coverage existed to pay its unreimbursed silica claims costs. Although due diligence searches had been performed at various points during U.S. Silica’s history in conjunction with its ownership changes, three comprehensive general liability insurance policies purchased by PGS from the Travelers Insurance Company and the Travelers Indemnity Company were discovered in U.S. Silica’s insurance files in September 2005.

The first policy had been in effect from April 1, 1949 until April 1, 1952; the second policy period had run from April 1, 1952 until April 1, 1955; and the third policy had been in effect from April 1, 1955 until April 1, 1958.

Upon discovery of these policies, U.S. Silica sent Travelers a letter on September 20, 2005, informing Travelers of the silica claims and requesting coverage under these Travelers policies for out-of-pocket expenses.

On November 22, 2005, U.S. Silica sent Travelers another letter; in this correspondence, U.S. Silica sought reimbursement of its pre-September 12, 2005 settlement and defense costs and requested a defense for newly-filed silica claims.

U.S. Silica then filed a declaratory judgment action against Travelers in a West Virginia state court.

Thereafter, Travelers sent U.S. Silica a reservation of rights letter denying coverage and a defense for all of the pre-2010 silica claims citing numerous grounds, including U.S. Silica’s failure to comply with the policies’ notice provision.

A jury found that Travelers had breached its insurance policies when it had refused to pay U.S. Silica’s claims for insurance coverage for the silica lawsuits, and it awarded U.S. Silica $8,037,745 in damages.

Travelers appealed to the Supreme Court of Appeals of West Virginia.

The Court’s Decision

The court reversed, ruled that U.S. Silica was not entitled to coverage under the Travelers policies, and ordered that judgment be entered in favor of Travelers.

In its decision, the court explained that each of the three Travelers policies contained a notice provision requiring the insured, i.e., U.S. Silica or its predecessor(s), to “immediately” forward to Travelers “every demand, notice, summons or other process received.”

In the court’s view, U.S. Silica had not complied with the notice provision when it requested Travelers to provide coverage for silica claims on September 20, 2005.

The court ruled that U.S. Silica, or its predecessor, should have notified Travelers of the silica claims when it first had received them, which, as supported by the record evidence in this case, had occurred “as early as 1975.”

Thus, the court found, with respect to some of these claims, approximately 30years had elapsed between U.S. Silica’s receipt of the silica claims and U.S. Silica’s notice to Travelers of the silica claims’ existence. The court then stated that although the issue of reasonableness typically was a jury question, in this case it was appropriate – given the “undisputed and egregious facts giving rise to the subject claims and the sophisticated nature of the parties involved in this proceeding” – for the court itself to consider whether U.S. Silica had satisfied the condition precedent to coverage, i.e., notice.

According to the court, U.S. Silica had not satisfied the notice condition. The court declared that an insured’s lack of knowledge of its own policies of insurance did not provide reasonable grounds to justify its late provision of notice to its insurer. The court stated that it was “the responsibility of the insured, not the insurance company, to keep track of which carriers have provided it with liability insurance.” The court concluded by stating that:

[A]n insured’s loss of its own insurance policy, or its failure to thoroughly search its own files to ascertain whether it might have a policy of insurance that provides coverage for a particular loss, does not excuse the insured of its duty to notify its insurer of claims for which it seeks coverage, particularly when such notice is a condition precedent to coverage.

The case is Travelers Indemnity Co. v. U.S. Silica Co., No. 14-0343 (W.Va. Nov. 10, 2015).

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  • Robert Tugander





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